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Broken Trust in God’s Country

In the Amish and Mennonite communities of rural Sugarcreek, Ohio, Monroe Beachy was a respected financial figure for decades. He is now accused of running a Ponzi scheme.Credit
Andrew Spear for The New York Times

SUGARCREEK, Ohio

THIS village is as sweet as its name. Main Street climbs gently from a tidy railroad crossing, past a few gift shops to the simple brick First Mennonite Church.

Beyond the hamlet lie the farms and buggy-traveled lanes of the eastern Ohio Amish country, one of the largest clusters of Amish and Mennonite settlements in the nation. Craft markets, furniture shops and restaurants dot the county roads. Those businesses carry the names — Yoder, Miller, Troyer, Beachy — that fill entire chapters of the slim local telephone book.

This postcard from a gentler and simpler America is about as unlikely a place imaginable for the news that broke in September: one of Sugarcreek’s own, a prominent member of what some people here call the Plain Community, was under arrest, accused by federal prosecutors of running a Ponzi scheme that betrayed his neighbors’ trust and wiped out more than $16 million of their savings.

The news media made the obvious comparisons.

The elderly defendant, Monroe L. Beachy, had been a respected financial figure in his community for decades — just like Bernard L. Madoff, the master swindler.

As in the Madoff case, Mr. Beachy’s seemingly successful investment firm employed several members of his family. He, too, first attracted clients who shared his religious faith. And he, too, was accused of defrauding charities, congregations, even his own relatives. Predictably, headlines have branded Mr. Beachy “the Amish Bernie Madoff,” although he is presumed innocent as he heads to trial next month.

But the most intriguing aspect of Monroe Beachy’s story is how different it seems from Bernie Madoff’s — and from almost every other story with a “Ponzi scheme” headline over the years.

While victims of Mr. Madoff’s fraud, like most Ponzi victims, condemned their accused betrayer in court as a monster, many of Mr. Beachy’s investors have said in court that it is more important to forgive him than to recover their money.

While the Madoff case and others like it have inevitably created conflict between longtime investors fighting to keep their fictional profits and more recent investors trying to recover lost principal, some Beachy investors urged that their own share of his estate should be given to those in greater need.

And while Mr. Madoff’s wife and sons instantly became social pariahs in Manhattan, Mr. Beachy’s wife and children remain at his farmstead here, living peacefully with their neighbors.

But like the Madoff case, the Beachy case has left an indelible mark on the nation’s bankruptcy record.

It became the forum for a rare bankruptcy court battle over religious freedom, with Mr. Beachy’s Amish and Mennonite creditors insisting that the court’s way of dealing with his downfall could not be squared with their faith or with his.

“Monroe Beachy in his time of distress breached the trust of his fellow Amish and Mennonites” by entering an “environment of coercion and self-protection in the bankruptcy court,” a group of church elders told the judge, urging him to put the case into the hands of the church where it belonged.

That would accomplish three worthy goals, they said. It would allow a less expensive, more advantageous financial workout “based on Christian principles of love and care for the poor and needy.” It would create a setting in which “Biblical forgiveness and restoration can be found between Monroe Beachy” and those he is accused of betraying. And it would repair “the tarnished testimony and integrity of the Plain Community.”

The Beachy name is not only common in Sugarcreek but also notable in the history of the Plain Community, which encompasses a number of Amish and Mennonite sects. One is known as the Beachy Amish, a splinter sect formed in the late 1920s and named for a founding bishop, Moses M. Beachy.

Monroe Beachy, in his late 70s, is married and has five adult children, three sons and two daughters, all living in the Sugarcreek area. He and his wife, Alma, and their daughters live in a tidy home on a 60-acre farm near the muddy verge of Township Road 162, barely wide enough for two cars to pass. The two-story house next door, which he built for his family in 1988, is now a son’s home. Monroe Beachy does not drive a car; his only vehicle is a horse-drawn buggy, valued at $3,300, including the horse.

Under oath at a creditor meeting in August 2010, he described his background. He has an eighth-grade education, he said, and attended a few high school classes. As an adult, he took some tax-preparation courses with H & R Block. With an associate, he formed an informal partnership, A & M Investments, in the mid-1980s to operate an H & R Block franchise, but the partnership was dissolved in 2000 and the franchise was sold. Thereafter, Mr. Beachy retained sole control of A & M Investments but also set up his own business, Payrolls & More, which processed paychecks for small businesses.

Photo

Monroe Beachy, scheduled to go on trial next month in Youngstown, lives with his wife and daughters in this home on a largely wooded 60-acre site.Credit
Andrew Spear for The New York Times

He was clearly a trusted community figure. He served for 15 years as treasurer of the Amish Helping Fund, a nonprofit that collects money from the Plain Community and uses it to provide mortgages for the purchase of farms and homes in that community. He kept the group’s records in a separate fireproof file box at his modest office at 122 West Main Street, across from the First Mennonite Church.

His A & M Investments eventually took in about $33 million, paying investors a fixed return that was better than they could get at the bank. He kept a share of their interest earnings as his fee. He assured those who asked that he invested in only very low-risk government bonds, regulators said in court filings.

In a modest way, Mr. Beachy helped the local economy, making undocumented loans on a handshake to the owners of a bakery and a popular noodle company, who paid him back when they could. He invested cash for dozens of businesses — a general store, several furniture makers, two concrete companies, an electric supply company and at least one large Amish-style restaurant.

Word spread about his safe, steady returns. Parents encouraged their children to practice thrift by opening A & M accounts, too. By spring 2010, he was mailing his simple one-page, seven-line statements to almost 2,700 investors, largely Amish and Mennonite, in more than two dozen states from Alaska to Arkansas.

THEN, on June 30, 2010, it all came crashing down.

That day, Mr. Beachy abruptly filed for bankruptcy, declaring liabilities of $33.2 million and assets of just $17.9 million. Two of the region’s small newspapers reported that there was a note on the door of A & M’s darkened office: “Due to an investigation A & M Investments is closed.”

One of the papers, followed more closely by the Amish community, reported receiving a statement in which Mr. Beachy disclosed the bankruptcy filing and said: “I deeply regret the concerns caused in our community and the shortfall in A & M’s investments. I took this action to ensure that account holders are treated as fairly as possible.”

The first creditor meeting was held that August, in the banquet hall of the Carlisle Inn in nearby Walnut Creek, one of the few places within reach that could accommodate the estimated 600 people who attended.

Under questioning by the bankruptcy trustee, Mr. Beachy explained that some “bad investments were made” and had gone sour, wiping out roughly half of his investors’ savings. He said these losses were in dot-com stocks and other stocks related to the Internet.

What about his assurances that he invested only in safe government bonds? “If we misled anyone, we did not do it on purpose,” he told one investor who questioned him. He said he had relied on recommendations from several advisers, including a broker in New York named Paul Chironis, and had failed to cut losses and seek advice many years ago, when the losses occurred.

The court-appointed bankruptcy trustee, Anne Piero Silagy, pressed Mr. Beachy about when he had decided to file for bankruptcy.

“When the subpoena was issued,” he said.

When the trustee opened the floor to questions, a man named Ryan Miller asked Mr. Beachy the obvious follow-up question: What subpoena?

Lawyers with the Chicago office of the S.E.C. would not disclose what drew their attention to Mr. Beachy or why they served him with the subpoena that prompted his hasty bankruptcy filing. But by September 2010, the government’s concerns were emerging in court filings.

Daniel M. McDermott, the Justice Department’s United States Trustee for the northern Ohio region, asserted in one document that Mr. Beachy had been insolvent at least since December 2001 and probably as early as 1998, when his handwritten ledger showed his portfolio’s market value as $23.6 million, while investors were owed $26.6 million. Mr. Beachy hid these losses from his clients and continued to accept new cash, Mr. McDermott said.

Moreover, the ledgers for two entire years — from January 1999 to December 2000, a period that included the bursting of the dot-com bubble — were missing, without explanation, according to Mr. McDermott. Investigators believed A & M Investments had been a Ponzi scheme, he reported.

The portrait of Mr. Beachy’s financial career sketched out in a civil lawsuit filed by the S.E.C. last February contrasted sharply with the homespun biography he gave creditors six months earlier.

Photo

A store in Sugarcreek, Ohio. The town is a tourist destination, aided by the public's fascination with the Amish.Credit
Andrew Spear for The New York Times

In July 1987, according to regulators, Mr. Beachy had passed the qualifying exam for a Series 6 securities license from Finra, the securities industry’s self-regulatory group. The license entitled him to sell mutual funds and variable annuities. Finra’s records show he was licensed through H. D. Vest Investment Services of Irvine, Tex., a national network of independent brokers and tax advisers that was acquired by Wells Fargo in 2001 and sold by the bank last year.

In 1998, according to court records, Mr. Beachy was among a handful of investors who paid $1.8 million to become preferred shareholders in W. J. Nolan & Company, a tiny brokerage firm in New York City. At the time, the firm was already in serious trouble with its regulators, and in October 2001 it closed its doors.

The preferred shareholders sued in state court in New York to recover their investment. In response, the firm sued two of its former brokers, contending that they had been responsible for misleading the preferred shareholders. One of those brokers was Mr. Chironis, the broker Mr. Beachy said had advised him in his disastrous foray into technology stocks.

In a telephone interview last week, Mr. Chironis denied that he had misled the preferred shareholders and said he did not feel that he had any responsibility for the losses Mr. Beachy incurred on those shares, or on any other investment he made over the years. “He was always in control of his own accounts,” Mr. Chironis said.

The W. J. Nolan litigation was settled out of court in 2004, the same year Mr. Beachy terminated his Series 6 registration with Finra. But Mr. Beachy did not terminate his relationship with Mr. Chironis, according to regulators. Mr. Beachy said at the creditor meeting in 2010 that not breaking his ties to the broker was “another mistake” he regretted.

In April 2010, less than three months before Mr. Beachy received the subpoena, the S.E.C. filed an administrative case accusing Mr. Chironis of defrauding the Sisters of Charity, an order of mostly elderly nuns in the Bronx. In January 2011, he was barred from the securities industry after he settled the S.E.C. case without admitting any wrongdoing and agreed to pay $350,000 to the nuns. Regulators would not say if their interest in Mr. Beachy grew out of the Chironis case.

Mr. Chironis said his dealings with Mr. Beachy went back more than a decade. But the assets Mr. Beachy still owned when he went bankrupt were certainly riskier than the plain-vanilla bonds his clients thought he was buying.

He had invested in various brand-name mutual funds, including one of the T. Rowe Price Spectrum funds, as well as the Pioneer Fund and Fidelity Magellan. He had $1.4 million in one high-yield mutual fund — also known as a junk bond fund — and smaller investments in other high-yield funds. And he had $350,000 in a margin account at the New York firm through which he dealt with Mr. Chironis.

Those holdings were at odds with Mr. Beachy’s assurances to creditors that he had turned away from riskier investments after his dot-com losses and had never traded on margin.

More than a dozen churches, church building funds, fellowships and ministries lost money in Mr. Beachy’s downfall. One family’s losses included the emergency savings relied upon by its daughter and son-in-law, serving as missionaries in Central America.

Many A & M accounts were small by Wall Street standards, but were crucial in a community whose citizens may have religious scruples against drawing Social Security benefits. The anxiety and confusion of many elderly investors is evident in the handwritten notes in the bankruptcy court docket.

“Greetings in the Name of Jesus!” one 76-year-old widow in the Miller clan wrote. “I had [$]4,327.80 in A & M Investments with Monroe Beachy. And I would like to tell you that I need it very badly.” She described her current ailments, osteoarthritis and diabetes, and concluded: “I hope and pray you can send me my money back. I need it. Thank you kindly.”

WITHIN weeks of Mr. Beachy’s bankruptcy, religious leaders were working on a proposal to handle the settlement of claims outside the court process, using the cash remaining in the estate, as well as donations from Amish and Mennonite communities nationwide.

In a document submitted to the court, the ad hoc committee organizing the effort explained the Plain Community’s feelings about the bankruptcy. “Bankruptcy is morally abhorrent and is not consistent with the values we hold,” the committee said. “It is a dishonorable discharge of debts.”

One passage in the document called for Mr. Beachy’s clients to seek reconciliation with him. Forgiving a brother does not require shielding him from his fate, it said. But extending charity “to those harmed, and to those that have done the harm is our testimony to the world of love and forgiveness.”

Wayne H. Wengerd, the committee chairman, said last week that he had known the effort “was a long shot — but it was important to provide a testimony to the world and to our own people about what we stand for.” He added: “We were willing to sacrifice to live out those teachings. The teachings are more important than money.”

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Business Day Live | Ponzi Scheme in Ohio

Amish religious leaders are petitioning to handle a ponzi scheme in church, not court.

“Hello: At A & M Investments our aim was to provide a decent rate of interest and for a number of years it worked. However some investments in stocks and bonds should not have been made and when they went bad I should have asked for advice from other people and the church. Instead I kept this to myself and went on hoping to recover at least some of the loss. But then we were forced to shut down at a low point in the economy and the loss is large. I am really sorry for this.”

He concluded: “I have made a confession to God and the church and feel I have been forgiven. I hope you can forgive me too.”

For the Amish plan to be put into action, the bankruptcy court would have had to dismiss Mr. Beachy’s case and turn back the clock to the moment before his filing. Only then could his dealings with creditors follow a different path.

The committee’s vigorous campaign to have the Beachy case dismissed, based on the First Amendment’s religious freedom protections and the Religious Freedom Restoration Act of 1993, won wide support. More than 2,300 creditors filed form letters with the court endorsing the plan.

THERE may have been some practical reasons for that. The public’s fascination with the charm of the Amish is the bedrock of the tourist economy here, and the Sugarcreek scandal was an ugly scar on that landscape. A solution emphasizing fundamental Amish values might well neutralize any damage that the Beachy case inflicted on the Amish image.

But the campaign’s intensity left some non-Amish creditors feeling uncomfortable. One grandmother recalled attending a meeting at which supporters insisted on a “standing vote,” not a secret ballot. She opposed the plan, she said, but she remained seated because she felt intimidated at having her position exposed publicly.

No such qualms afflicted the S.E.C. legal staff, the United States Trustee’s office and the bankruptcy trustee. In court, they all stood firmly against the alternative plan. It would lack judicial oversight and protections against mismanagement or unequal treatment, they argued. And it could well be unconstitutionally unfair to a small minority of non-Amish creditors, who would be steered out of court and into a religious forum tacitly endorsed by the government.

Last March, Federal Bankruptcy Judge Russ Kendig in Canton, in the federal courthouse closest to Sugarcreek, ruled that “delegating insolvency proceedings to a religious body” would be unconstitutional.

Given the high constitutional hurdle, the judge said, Mr. Beachy simply had not “met his burden” for showing why his case should be dismissed after it had started moving through the court. Once “the rock begins to roll,” he concluded, something much stronger than a change of mind is required to stop it.

No part of this story contrasts as sharply with the real Bernie Madoff case as what happened next.

In the Madoff bankruptcy, virtually every adverse ruling has been appealed by the losing side, as have disputed decisions in countless other high-profile bankruptcy cases. But when the Amish leaders lost their passionate plea, rooted in their deeply held religious beliefs, they simply sent the judge a letter.

“We are agreed among ourselves to accept your ruling as the will of Almighty God in this matter,” they wrote, after thanking him for considering their point of view so carefully. “If there is anything which we can do as members of the Amish-Mennonite community to facilitate the bankruptcy process and help bring it to a speedy conclusion please do not hesitate to contact any member” of the committee.

On Sept. 15, 2011, more than a year after Monroe Beachy closed his office and made his fateful trip to bankruptcy court, federal prosecutors held a press conference in Cleveland to announce that he had been indicted on mail fraud charges arising from a “scheme to defraud” that they said dated back to 1990.

He is scheduled to go to trial next month in Youngstown. If convicted, he faces a possible jail term of up to 20 years. His court-appointed defender, a prominent Youngstown criminal defense lawyer, J. Gerald Ingram, did not respond to messages seeking comment on the case.

The bankruptcy case in Canton, meanwhile, is moving forward. The trustee, Ms. Silagy, is optimistic that up to 50 cents on the dollar ultimately can be returned to investors, according to her lawyer, Bruce R. Schrader. Some creditors have filed letters with the court expressing frustration with the delay, but he said that only about 400 creditor claims, out of 2,600, have not been pursued in court.

The criminal trial, scheduled to open on March 19, will no doubt generate new headlines in Sugarcreek — which would much rather tell the world the sort of news it had last month: the village will soon install one of the world’s largest cuckoo clocks.

Mayor Clayton Weller of Sugarcreek says he hopes the trial will not cause renewed rancor. “I personally feel that the people are accepting what has happened,” he said. “They are understanding, and most of them are forgiving.”

But as the church fathers see it, something of lasting importance was tried in Sugarcreek.

“A hundred years from now, what will be the difference about how much money we had here?” asked Emery E. Miller, a village resident and a proponent of the alternative plan, at the first creditors meeting. “But a hundred years from now, there will be a difference in how we responded to this from our moral being, from a moral level — the choices we made to forgive or not to forgive.”

A version of this article appears in print on February 26, 2012, on page BU1 of the New York edition with the headline: Broken Trust In God’s Country. Order Reprints|Today's Paper|Subscribe